Unit ko samjho · NISM Series XIX-A
Valuation
8 questions is unit mein
Sawaal aur jawaab English mein hain, kyunki NISM ka exam paper bhi English mein hota hai.
Is unit mein kya hai
- What is the central idea of discounted cash flow valuation?
- For an otherwise unchanged fixed-rate bond, what generally happens to its price when the required market yield rises?
- Enterprise value is ₹120 crore, debt ₹30 crore and surplus cash ₹10 crore. With no other adjustments, what is equity value?
- A fund has assets of ₹250 crore, liabilities of ₹10 crore and 20 crore identical units. What is net asset value per unit?
- A business has earnings before interest, tax, depreciation and amortisation of ₹12 crore. An enterprise-value multiple of eight applies. What is enterprise value?
- A zero-coupon instrument pays ₹121 exactly two years from today. At a 10% annual compounded discount rate, what is its present value?
- An investment pays ₹11 lakh after one year and a final ₹121 lakh after two years. What is present value at 10% annually?
- An early-stage company is making accounting losses but has uncertain future growth opportunities. An analyst proposes using a conventional positive price-to-earnings multiple on its negative earnings. What is the more appropriate approach?
Zaroori ideas
Practice bank se · 1
What is the central idea of discounted cash flow valuation?
Discounted cash flow valuation estimates present value from expected future cash flows using an appropriate discount rate. Its result depends on the cash-flow and discount-rate assumptions. Remember: A cash-flow valuation is an estimate built on assumptions, not a guaranteed sale price.
Hint Consider how money received in the future is valued today. Common mistake: Treating forecast cash as if it were already available today.
XIX-A-127Practice bank se · 2
For an otherwise unchanged fixed-rate bond, what generally happens to its price when the required market yield rises?
The price generally falls because a higher required yield reduces the present value of the unchanged cash flows. This relationship assumes the other relevant terms and risks remain unchanged. Remember: Fixed cash flows do not imply a fixed market value.
Hint Apply the new required return to the bond’s unchanged payments. Common mistake: Assuming that a fixed coupon makes a bond’s market price constant.
XIX-A-128Practice bank se · 3
Enterprise value is ₹120 crore, debt ₹30 crore and surplus cash ₹10 crore. With no other adjustments, what is equity value?
Equity value is ₹100 crore after deducting debt and adding surplus cash. Equity value = ₹120 crore − ₹30 crore + ₹10 crore = ₹100 crore. Remember: Enterprise value and equity value are connected by the debt-and-cash bridge.
Hint Separate the value available to debt holders from the value attributable to shareholders. Common mistake: Treating enterprise value as the shareholders’ value without adjustment.
XIX-A-129Practice bank se · 4
A fund has assets of ₹250 crore, liabilities of ₹10 crore and 20 crore identical units. What is net asset value per unit?
Net asset value per unit is ₹12. Net assets = ₹250 crore − ₹10 crore = ₹240 crore. Value per unit = ₹240 crore ÷ 20 crore units = ₹12. Remember: Fund liabilities must be deducted before calculating per-unit net value.
Hint Calculate what belongs to unit holders before dividing by the unit count. Common mistake: Using gross assets instead of net assets in a unit-value calculation.
XIX-A-130Practice bank se · 5
A business has earnings before interest, tax, depreciation and amortisation of ₹12 crore. An enterprise-value multiple of eight applies. What is enterprise value?
Enterprise value is ₹96 crore using the specified earnings multiple. Enterprise value = ₹12 crore × 8 = ₹96 crore. Equity value would require any relevant debt, cash and other adjustments. Remember: Apply a valuation multiple to its matching earnings or financial measure.
Hint Match the stated valuation multiple with its matching earnings measure. Common mistake: Calling enterprise value the final shareholder value without checking the bridge.
XIX-A-131Practice bank se · 6
A zero-coupon instrument pays ₹121 exactly two years from today. At a 10% annual compounded discount rate, what is its present value?
The present value is ₹100 because ₹100 compounded at 10% for two years becomes ₹121. Present value = ₹121 ÷ 1.10² = ₹121 ÷ 1.21 = ₹100. Remember: Discount each payment over its full remaining term.
Hint Work backwards through two years of compounding. Common mistake: Discounting a two-year cash flow for only one year.
XIX-A-132Practice bank se · 7
An investment pays ₹11 lakh after one year and a final ₹121 lakh after two years. What is present value at 10% annually?
The present value is ₹110 lakh after discounting each payment separately. Year-one present value = ₹11 lakh ÷ 1.10 = ₹10 lakh. Year-two present value = ₹121 lakh ÷ 1.10² = ₹100 lakh. Total = ₹10 lakh + ₹100 lakh = ₹110 lakh. Remember: Cash-flow timing must be preserved in a valuation.
Hint Value each cash flow at its own date before adding the present values. Common mistake: Applying one discount period to payments that occur on different dates.
XIX-A-133Practice bank se · 8
An early-stage company is making accounting losses but has uncertain future growth opportunities. An analyst proposes using a conventional positive price-to-earnings multiple on its negative earnings. What is the more appropriate approach?
Suitable alternative methods with explicit assumptions and scenarios are more appropriate than mechanically applying a positive earnings multiple to losses. Current losses alone do not prove that the business has no economic value. Remember: Choose valuation methods that fit the company’s stage and financial characteristics.
Hint Check whether the chosen multiple is meaningful for the company’s current financial profile. Common mistake: Forcing a familiar multiple onto an unsuitable earnings base.
XIX-A-134